Defined-Benefit Plan


DEFINITION of 'Defined-Benefit Plan'

An employer-sponsored retirement plan where employee benefits are sorted out based on a formula using factors such as salary history and duration of employment. Investment risk and portfolio management are entirely under the control of the company. There are also restrictions on when and how you can withdraw these funds without penalties.

Also known as "qualified benefit plan" or "non-qualified benefit plan."

BREAKING DOWN 'Defined-Benefit Plan'

This fund is different from many pension funds where payouts are somewhat dependent on the return of the invested funds. Therefore, employers will need to dip into the companies earnings in the event that the returns from the investments devoted to funding the employee's retirement result in a funding shortfall. The payouts made to retiring employees participating in defined-benefit plans are determined by more personalized factors, like length of employment.

A tax-qualified benefit plan, shares the same characteristics of a defined-benefit plan, but also provides the beneficiary of the plan with added tax incentives. These tax incentives are not realized under non-qualified plans.

  1. Withdrawal Benefits

    The rights of an employee who has a qualified pension plan to ...
  2. Withdrawal Credits, Pension Plan

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  3. Advanced Funded Pension Plan

    A pension plan that is funded concurrently with the employee's ...
  4. Cash Balance Pension Plan

    A pension plan under which an employer credits a participant's ...
  5. Target-Benefit Plan

    A benefit plan that is similar to a defined benefit plan since ...
  6. Pension Plan

    A type of retirement plan, usually tax exempt, wherein an employer ...
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  1. Who is eligible for a Teacher Retirement?

    Teachers help to produce the leaders of tomorrow and put forth a lot of hard work and sacrifice to do so effectively. With ... Read Full Answer >>
  2. What is the difference between qualified and non-qualified plans?

    Qualified and non-qualified retirement plans are created by employers with the intent of benefiting employees. The Employee ... Read Full Answer >>
  3. Who bears the investment risk in 401(k) plans?

    Who actually bears the investment risk in a pension plan depends on the type of pension plan that is employed. In a broad ... Read Full Answer >>
  4. Are 401(k) contributions tax deductible?

    All contributions to qualified retirement plans such as 401(k)s reduce taxable income, which lowers the total taxes owed. ... Read Full Answer >>
  5. Are 401(k) rollovers taxable?

    401(k) rollovers are generally not taxable as long as the money goes into another qualifying plan, an individual retirement ... Read Full Answer >>
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    Unlike regular employee deferrals, catch-up contributions are not included in the 415 limit. While there is an annual limit ... Read Full Answer >>

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